Market regulator the Securities and Exchange Board of India (Sebi) today said the buyback agreements that bourse MCX-SX had signed with some shareholders was akin to an airline passenger taking the help of fellow fliers to get excess gold past customs.
"If (say) there is a restriction on an airline passenger visiting India that allows him to carry 5 kg of gold into the country and he is actually in possession of 10 kg, he gives the excess of 5 kg to a fellow passenger to carry the same across the Customs Line...
"And enters into an agreement with him to take it back some time thereafter (promising him a certain incentive for doing so)," the regulator said in its order rejecting the plea of MCX-SX to start a full-fledged stock exchange.
"Would such an airline passenger be in violation of the law?" Sebi wondered.
"The answer is self-evident. Would this transaction become legal, if he takes the plea that after all there are regulatory authorities that can apprehend him, when and if, he actually repossesses the gold from the fellow passenger?" Sebi said further.
The regulator said that "the similarities with the analogy above are only too striking" in the case related to MCX-SX, which has entered into buyback agreements with some shareholders.
The arrangements between the promoters and their associates with investors in the Stock Exchange are material to Sebi for determining compliance to shareholding-related regulations, Sebi said, while giving the analogy to clarify the position.
"In all buy back arrangements... There was a promise of an incentive accompanying these arrangements," Sebi said.
